Asked by Haley Adams on May 04, 2024
Verified
Grouperman Corporation currently manufactures a subassembly for its main product. The costs per unit are as follows: Direct materials $10 Direct labor 10 Variable overhead 7 Fixed overhead 9‾ Total $36‾‾\begin{array} { l r } \text { Direct materials } & \$ 10 \\\text { Direct labor } & 10 \\\text { Variable overhead } & 7 \\\text { Fixed overhead } & \underline { 9 } \\\text { Total } & \underline { \underline { \$ 36 } }\end{array} Direct materials Direct labor Variable overhead Fixed overhead Total $101079$36 Fez Company has contacted Grouperman with an offer to sell it 7000 of the subassemblies for $30 each. If Fez makes the subassemblies $4 of the fixed overhead per unit will be allocated to other products.
Instructions
Should Grouperman make or buy the subassemblies? Explain your answer.
Variable Overhead
Costs that change in proportion to the level of production or activity within a business.
Direct Materials
Raw materials directly used in the manufacturing of a product, which can be directly attributed to the finished product.
Fixed Overhead
Costs that do not vary with the level of production or sales, such as rent, salaries, and insurance, which are necessary for a business's operations regardless of output.
- Evaluate the options of self-manufacturing versus outsourcing, taking into consideration the opportunity costs and the comprehensive impact on costs.
Verified Answer
SS
Sabra SimonMay 09, 2024
Final Answer :
Cost to make - cost to buy = incremental cost
($36 - $4) - $30 = $2
Incremental cost to make = $2 × 7000 units = $14000
Grouperman should buy to save $2 per unit.
($36 - $4) - $30 = $2
Incremental cost to make = $2 × 7000 units = $14000
Grouperman should buy to save $2 per unit.
Learning Objectives
- Evaluate the options of self-manufacturing versus outsourcing, taking into consideration the opportunity costs and the comprehensive impact on costs.